Contract Signings Decline Amidst Housing Market Challenges
In August, contract signings for U.S. homes witnessed a substantial decline, primarily influenced by elevated interest rates and a notable shortage of available homes, according to the monthly index released by the National Association of Realtors (NAR).
Pending home sales experienced a significant 7.1% drop in August compared to the previous month. This decline marked the lowest level for pending home sales since April 2020, during the height of the coronavirus pandemic. These two months shared the distinction of being the lowest on record since the NAR initiated data tracking in 2001. Notably, this figure exceeded expectations, as economists had anticipated a more moderate 1% decrease in pending home sales for August.
Furthermore, pending home sales transactions for August were down by a substantial 18.7% when compared to the same period in the previous year.
Pending home sales signify transactions where contracts have been executed for the sale of existing homes but have not yet concluded. Economists widely regard this metric as an indicator of the future trajectory of existing-home sales in the ensuing months. The high mortgage rates prevailing in August, reaching well into the 7% range, likely contributed to a slowdown in buyer demand.
It’s worth noting that the impact of high rates has been more pronounced on resale homes compared to newly constructed homes, as home builders can offer lower rates on newly built properties.
However, with rates trending toward new highs, reaching levels not seen since December 2000 at the end of September, it is anticipated that the overall housing market may face further challenges before witnessing a turnaround.
Lawrence Yun, Chief Economist at NAR, emphasized the significance of increased housing inventory and improved interest rates in revitalizing the housing market. Yun also suggested that the Federal Reserve should consider the deceleration in rent growth when evaluating future monetary policy, advocating against the need to raise interest rates.
Yun also drew attention to the potential impact of a government shutdown on home sales, particularly due to issues related to flood insurance and potential delays in government-backed mortgage issuance.
Lisa Sturtevant, Chief Economist at Bright MLS, indicated that August could mark the beginning of a temporary downturn in the resilient housing market. She noted that buyers are facing affordability constraints, causing some to refrain from participating in the market. Additionally, higher mortgage rates and overall economic uncertainty are fostering a sense of caution among potential buyers. Sturtevant anticipates that home sales transactions in the upcoming fall months may reach a decade low.
In conclusion, the housing market faces multifaceted challenges, from high interest rates to supply constraints, leading to a complex and evolving landscape for homebuyers and sellers alike.